Are credit cards the next collapse?

Are credit cards the next collapse?

By Christina Rexrode | Charlotte Observer
First came trouble with mortgages, then home equity loans and commercial real estate. Now, banks are starting to worry about credit cards.

As the economy slows and unemployment rises, consumers are defaulting on credit-card payments more often. And though that trend is unlikely to create
a crisis in line with the mortgage fallout, it's still a headache for banks that are already hurting.

U.S. banks charged off 5.47 percent of all credit card loans in the second quarter, according to the Federal Reserve, representing some $50 billion
that they'll likely never collect. That's up from 3.85 percent the year before, and that is a movement that's on the radar of Ken Lewis, chief
executive of Charlotte's Bank of America Corp.

Asked in a recent TV interview if credit-card debt would be “the next shoe to drop” for the banking industry, Lewis replied: "It, in some ways,
already is," adding that such losses have risen "pretty substantially."

More and more the 700 billion bailout package is looking like what I feared it was in the first place... this administration giving the hogs one more
shot at the feeding trawl before the watch changes.

That being said this is what I fear is the real crisis facing us. The stock market has had little if any connection with reality for some time now....
BUT like the housing bubble, the credit card bubble keeps getting bigger and bigger and bigger. A day doesn't pass where I either am barraged with
e-mails offering me credit or they show up in my mailbox at home.

For too long we have been living beyond our means and sooner or later, and it increasingly looks like sooner, the birds will come home to roost.

Mark my word, in 4 to 5 years time fewer people will have credit cards and more will be paying cash than have been in recent years...

I was talking to a relative about this a couple of weeks ago. He used to work at American Express and still has plenty of contacts inside the
company. They're seeing a frighteningly large number of delinquencies from their platinum and black card holders. I'm not sure of the numbers but
he said that he was given the impression that the issue was rather large. and growing.

A few years ago I paid off all of my card and cut them up... and they haven't let me alone since... its really insane.

A friend of mine signed up for a card online, mastercharge through some bank in Maryland... well they promised him $500 credit line. When he called
up to activate it he was told that he would have $450 in fees right up front and only $50 in credit. He hung up the phone and they started trying to
bill him anyway.

It is these predatory practices, just like the predatory practices in the mortagage business that have made such a mess of things.

This friend, had to fight them tooth and nail to get them to stop billing him for the fees + interest. He finally had to contact a lawyer and threaten
legal action to get them to stop.

Eliminated a good (figuratively speaking) $15K in credit card debt between my wife and myself 3 years ago and have shredded every credit card offer
since. My one card I destroyed I'd had since my Freshman year of college. I kept paying the min. through college and they kept raising the limit
and it was at, like, $8k limit when I graduated (and the balance was close to the same, unfortunately).

I basically have lived without using credit cards for 5 years. When we decided to eliminate the debt we canceled all the cards we had and through a
debt counseling service we were able to freeze the interest on them and pay the cards off in leaps & bounds. It wasn't easy, and I've been tempted
to get a card just for emergencies, but in the end I've been glad to be free of the shackles they present.

you know, cutting them up doesn't close your account out. I recently had my credit report run for the purposes of a banking license and it came back
with two things that brought down my score. Two available lines of credit from old cards. I haven't had activity on either account in over 4 or 5
years but the accounts were never closed so the credit limits are still there.

IMO, the only thing that has kept credit card companies form collapsing so far is their high interest rates. Let's face it, when you sit down over a
pile of monthly bills and realize there's too much month left at the end of the money, who gets to wait? Food? No one wants to go hungry, although it
can usually be trimmed. Electricity? Hardly. Water? Nope, absolutely necessary. Gas? How else do you get to work? Car payment? Nope, sorry, need that
to get to work too. House payment? In a market where foreclosures are the norm, that's ridiculous.

You are left with one last pile of bills, the unsecured debt, where nothing gets immediately repossessed: the credit card bills. So you have a
higher default rate, which is used to justify the higher interest rates. The higher rates mean more profit for the company in god times, and the
ability to handle larger default rates in bad times. Now, however, in terrible times, the default rate is climbing as more and more people are finding
themselves sitting down to that pile of bills that there is not enough money to cover.

I just heard this morning on CNN some advice from a credit counselor, who stated that should the Fed cut the interest rate, consumers should watch out
for changes to their credit card accounts. Specifically, she warned that companies may switch variable-rate agreements to fixed-rate agreements in
order to minimize losses form dropping interest rates! Oh, now this is a great idea: just let the company pick whichever arrangement they want to use
when they want to use it.

She also mentioned that they are required to allow an 'opt-out' option period prior to the change, so if anyone has
credit cards and is reading this, read the fine print on every single piece of paper you receive! Falling interest rates favor the consumer in
variable-rate accounts, so as long as interest rates are dropping or expected to drop, keep the variable rate. If you wish to opt out to a more secure
fixed rate, wait until the interest rates fall, then change over.

I am amazed that companies are allowed to even do this. This should not be an 'opt-out' option, but rather an 'opt-in' option.

A friend of mine signed up for a card online, mastercharge through some bank in Maryland... well they promised him $500 credit line. When he called
up to activate it he was told that he would have $450 in fees right up front and only $50 in credit.

your friend actually and seriously thought that volunteering their social security number, home address, telephone #, & a brief credit history...
to be awarded a 'free lunch' access to $500.00 credit was real & had no strings?

I have one credit card with about $100 on it. I usually pay it off but then I use it again because some transactions are just easier with a card.

So a credit card crunch isn't going to hurt me much.

Credit cards the way they are used today are a really bad idea anyway. There is a lot to be said for the old fashioned lifestyle, where credit was
only used if you were starving.

However, since there is a pretty good chance that we will all be starving soon, I guess this could be a problem.

I have a neighbor who makes about $60,000.00 a year. They have two homes, a Hummer and a second vehicle, are currently totally remodeling home #1,
have already installed new windows and a new air conditioner, are planning some new landscaping, and buy everything they want, whenever they want. I
can only guess that they owe like 10 times their net worth and have to take out cash advances on credit cards to pay their other credit cards. Crazy.
But even crazier is that they choose to do this rather than change their lifestyle. And they have KIDS! What are they planning to leave for them? I
don't know.

My husband and I chose to be poor so that I could stay home and raise our kids. It has been a big sacrifice - we get to watch everyone else we know
buy new cars, fix up their homes, go on nice vacations, etc., while we drive a beat up old pickup truck and our house falls apart. In our nice
suburban neighborhood we look like the "bad seed". People probably drive by our house and think we are some kind of losers, but they are wrong; we
are good, clean-cut people who choose to live within our means. Most people today, at least in America, have NO IDEA how to do this. What
happens to them when the credit runs out? They have to live in a run-down house and drive a beat up car.

Its called "keeping up with the Joneses" and I believe that its burned into us by big corporations by ways of the good old telly. I love to sit back
and watch these idiots around me trying to out do each other every year by buying a new SUV or Fancy Juguar or land Rover, knowing that they have
maybe a month or two to bankruptcy. Even my next door neighbor bragging about the thousand dollar designer purse she just bought knowing they live off
a teachers salary.

Speaking from experience . . . if you've got access to credit cards and lines of credit and you get them up over 60 percent of the limit, you're
toast as it is a tobbogan ride to hell down the side of a cliff from the interest rates.

Then, miss a payment or two and they jack your rate.

Then it's fiscal purgatory for you.

When that happens . . . either file for bankruptcy or petition the Fed for 'bank status' so you can get some of the bailout money because those are
the only two things that will save your arse.

Sounds like that's what the credit card shylocks are up against. What a shame that they're powerless due to the unsecured nature of credit cards
from exacting their pound of flesh.

It is a shame, though, that they'll get 'bailed' either directly by the government or indirectly when one of the already bailed out buys them for
pennies on the dollar and then makes a freakin' killing on the vig from those who do continue to make their payments.

When the CREDIT CARD companies demanded to double peoples payment bills a while back, the entire population of consumers that were fueling the economy
was swamped like a row boat. They now had lost every bit of monthly spending money because people had budgeted for the exact amount of their bills.
When the could no longer make the payments on short term credit they began to allow defaults on long term credit. (home and other loans) They figured
dropping the largest payments in default would give them the best chance to make it.

This is the root cause of the financial crises going on right now. it was Caused by greedy credit card companies and trickled up when the paycheck no
longer payed the credit card bills. Lets say the credit pay was 1500 a month on short term. And there was a 600.00 surplus of cash. They doubled the
card payments to 3,000 and now the consumer was short 900.00 a month. The decided to default on their homes and move into rentals to free up cash
again.

The entire economy was destroyed when the legislation to pass the laws that allowed it was drawn up. Those people are the criminals who took kickbacks
from the credit companies and caused the economic failure.

the biggest outrage about this is the cerdit you were given was based on risk and the banks accept a risk when they loan you the consumer money , it
would be great to go to the race track and drop a grand on some ponies and then loose and say to the government, "hey i lost money on the ponies, i
need a bail out" its the same thing these companies make money by risking there money.. that how they make money, these bail out are eliminating all
risk to these companies.. its a huge sham.

They can make the most stupid mistake and the tax payer ends up wit the bill for there stupidity in putting someone working in McDonolds in a half
million dollar house and 10k on his credit cards.

I love it how in very fine print that if you take out a cash advance and default by 1 payment the interest rate goes way up, I have seen it on some
cards as high as 24.5% ! That is a freakin rip off and now way in hell will I get another C.C. One is enough!

But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded
themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial
real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from
some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the
credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

He is now famous for calling this financial meltdown, though he is disparaged by some for calling it way too early. He has been talking about it
since 2004.

I think we have only begun to see the fallout from this whole mess. Regardless how nice the market has looked this week.

Lord, I hope so! I would love the opportunity to pay back my credit card debt at pennies on the dollar...especially after they have gotten so much
money from me through their outrageous interest rates. Maybe the government will come up with a bail out package fro the credit card compaines and
they will pay off my debt for me!

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